TIDMFXPO
RNS Number : 4705O
Ferrexpo PLC
30 June 2010
30 June 2010
Ferrexpo plc
("Ferrexpo" or the "Group" or the "Company")
Disclosure of First Quarter Results
Ferrexpo is releasing its results as at and for the three months ended 31 March
2010. Shareholders should note that Ferrexpo has no current plans to release
quarterly results with respect to any future periods.
Financial Highlights
· Revenue up by 34% to US$188.9 million
· EBITDA up by 30% to US$46.0 million
· Underlying profit for the period up by 28% to US$26.2 million
· Exceptional write down on VAT receivable of US$15.0 million
· Reported profit for the period down by 46% to US$11.6 million
· Underlying diluted earnings per share up 28% to 4.47 US cents
· Reported diluted earnings per share down 47% to 1.96 US cents
Operating Highlights
· Material improvement in demand for our pellets
· Production up by 24% to 2.3 million tonnes of pellets
· Production of 65% iron content pellets and 62% iron content pellets each
accounted for approximately 50% of output
· Average C1 cash cost of US$38.48/tonne
· Prices were in-line with the agreed 2009/10 Benchmark price
· Geographical sales mix normalised - 65% Traditional markets
· Over 90% of sales volume based on long term framework contracts
Outlook
· Iron ore demand has recovered from its 2009 lows, suggesting that iron
ore pellet prices should remain well above 2009 levels for the remainder of
2010. For the April to June 2010 quarter, Ferrexpo has already or expects to
secure significant average DAF/FOB price increases in line with international
pricing for all of its production.
· Due to the improved pricing environment and through continued effective
management of the cost base the Board expects the Group to realise a strong
financial performance for the remainder of the year compared with 2009 levels.
Kostyantin Zhevago, Chief Executive Officer of Ferrexpo commented:
"I am delighted to report consistently strong production levels. We are
maintaining disciplined cost control and the Group is well positioned to
capitalise on current conditions in the iron ore market. As such, the Group is
actively engaged in re-evaluating growth project budgets and schedules in order
to realise full value for our shareholders."
For further information, please contact:
+-------------------------------------+-------------------------------------+
| Ferrexpo: | |
+-------------------------------------+-------------------------------------+
| Ingrid Boon - Investor Relations | +44 207 389 8304 |
| Manager | |
+-------------------------------------+-------------------------------------+
| | |
+-------------------------------------+-------------------------------------+
| Pelham Bell Pottinger | |
+-------------------------------------+-------------------------------------+
| Charles Vivian | +44 207 861 3126 |
+-------------------------------------+-------------------------------------+
| Evgeniy Chuikov | +44 207 861 3148 |
+-------------------------------------+-------------------------------------+
Notes to Editors:
Ferrexpo is a Swiss headquartered resources company with assets in Ukraine,
principally involved in the production and export of iron ore pellets, used in
producing steel. Current output is approximately 9 million tonnes, most of which
is exported to steelmakers around the world. The Group is listed on the main
market of the London Stock Exchange under the ticker FXPO. For further
information please visit www.ferrexpo.com.
Summary
The Group's results for the first quarter of 2010 reflected improving industry
fundamentals after the severe global downturn witnessed in 2009. Renewed sales
demand resulted in a 29% increase in sales volumes compared with the first
quarter of 2009.
Following a recovery in our Traditional customers' end markets, we witnessed an
immediate and continued improvement of our sales profile with over 65% of our
sales volume made to Traditional customers as opposed to 26% in the first
quarter of 2009. Over 90% of our sales volumes were based on long-term volume
framework agreements compared with 44% in the first quarter of 2009.
Pricing for the first quarter of 2010 predominantly reflected the annual
Benchmark price from 1 April 2009 to 31 March 2010, while disciplined cost
management ensured that our C1 cost of production was in line with the
comparable 2009 period despite cyclical price increases for commodity based
inputs and inflationary pressures in Ukraine.
Results
Our mining operations and marketing division were able to produce and sell at
full capacity throughout the period. Higher average DAF/FOB prices, increased
volumes and contained cost pressures resulted in a significant improvement in
the underlying financial performance for the first quarter of 2010 compared with
the corresponding period in 2009.
As a result, revenues in the period under review were US$188.9 million, 34%
above those achieved in the first three months of 2009 (1Q 2009: US$141.3
million). EBITDA for the period rose 30% to US$46.0 million (1Q 2009: US$35.5
million) and underlying Group profit for the period increased 28% to US$26.2
million (1Q 2009: US$20.4 million). On a reported basis, Group profit for the
period declined to US$11.6 million (1Q2009: US$21.6 million) due to an
exceptional write down on VAT receivables of US$15.0 million.
Market Environment and Pricing
The global recession, that began in the final quarter of 2008 and commenced a
slow recovery in the latter part of 2009, has had a marked effect on industry
fundamentals, specifically on annual iron ore benchmark pricing arrangements.
Reliance on iron ore spot market prices during the downturn increased
dramatically notwithstanding agreed benchmark pricing between steel producers
and iron ore suppliers. As a result, the largest iron ore producers have now
substantially agreed quarterly pricing with their customer base from 1 April
2010. This represents a fundamental change to the previous annual pricing system
which had been in place for 40 years.
The industry, however, remains in a period of transition with regard to
establishing a new pricing methodology, and there is at the moment no clarity
with respect to the frequency with which benchmark price settlements will occur
going forward. We currently expect that it could take several quarters before a
generally accepted methodology emerges and the transparency that existed under
annual benchmark price arrangements returns. In the meantime we are focusing on
establishing provisional pricing with our customers at current market levels.
These provisional prices will generally be subject to adjustment once finalised
industry prices are available. While it is impossible at this time to predict
whether more frequent re-pricing would have any effect on the overall average
annual pellet prices we achieve, it would likely give rise to a greater degree
of short term period-to-period variability in our results than has previously
been the case.
Marketing
The impact of the recovery in demand can be seen in our first quarter results.
Our geographic sales mix reverted to more normal patterns with 65% of total
pellet sales volumes to our Traditional markets, 23% to Growth markets and 12%
to Natural markets. By comparison in the first quarter of 2009, only 26% of
sales were made to Traditional markets, with 65% to Growth markets, 6% to
Natural markets and 3% to our Domestic market.
Our geographical proximity to our Traditional customers via rail and river
infrastructure in Eastern and Central Europe give us a significant freight cost
advantage over international competitors. Moreover, we enjoy supply chain
flexibility and can make smaller and more frequent deliveries that meet our
Traditional customers' timing needs and storage constraints. These factors have
historically enabled us to negotiate higher DAF/FOB per tonne pellet prices in
our Traditional markets than elsewhere. Absent significant changes in the
supply-demand environment, we have no reason to expect that this will not
continue to be the case.
Operations
Production
Ferrexpo's mining operations continued to perform consistently well in the first
quarter of 2010. The Group produced at full capacity through-out the period
under review, increasing production by 24% relative to the first quarter of
2009, when unusually severe weather conditions affected production. As a result
the volume of pellets produced from own ore increased 15% during the period to
2.2 million tonnes compared to the first three months of 2009 (1Q 2009: 1.9
million tonnes). The Group also purchased third party concentrate producing 0.2
million tonnes of pellets (1Q 2009: nil). We will continue to purchase third
party concentrate provided we can ensure a sufficient margin is realised.
In total, the Group produced 1.1 million tonnes of higher grade 65% iron content
pellets during the period, a 15% increase compared to the same period last year
(1Q 2009: 0.9 million). The split between 62% and 65% iron content pellets was
broadly similar to the split in the first quarter of 2009 - around the 50%
level. The Company does not anticipate a significant change to this ratio for
the remainder of the year. A further breakdown of our production statistics for
the quarter can be seen below.
Production statistics
+-------------------------+----------+----------+----------+--------+--+--------+
| ('000t unless otherwise | | | | | |
| stated) | | | | | |
+-------------------------+----------+----------+----------+-----------+--------+
| Production in Tonnes | | | 1Q | 1Q 2009 | % |
| '000 | | | 2010 | |Change |
+-------------------------+----------+----------+----------+-----------+--------+
| Production from own raw | | | | | |
| materials | | | | | |
+-------------------------+----------+----------+----------+-----------+--------+
| Iron Ore | | |7,213.0 | 6,192.1 | 16.5 |
+-------------------------+----------+----------+----------+-----------+--------+
| Concentrate | | |2,694.9 | 2,287.6 | 17.8 |
+-------------------------+----------+----------+----------+-----------+--------+
| Pellets | | | | | |
+-------------------------+----------+----------+----------+-----------+--------+
| 62% Fe | | |1,172.1 | 905.9 | 29.4 |
+-------------------------+----------+----------+----------+-----------+--------+
| 65% Fe | | | 990.2 | 977.4 | 1.3 |
+-------------------------+----------+----------+----------+-----------+--------+
| Total Pellets | | |2,162.3 | 1,883.3 | 14.8 |
+-------------------------+----------+----------+----------+-----------+--------+
| | | | | | |
+-------------------------+----------+----------+----------+-----------+--------+
| Production/reprocessing from purchased raw materials | | |
+-------------------------------------------------------------------+--+--------+
| Pellets | | | | | |
+-------------------------+----------+----------+----------+-----------+--------+
| 62% Fe | | | 47.7 | 0.0 | |
+-------------------------+----------+----------+----------+-----------+--------+
| 65% Fe | | | 129.6 | 0.0 | |
+-------------------------+----------+----------+----------+-----------+--------+
| Total Pellets | | | 177.3 | 0.0 | |
+-------------------------+----------+----------+----------+-----------+--------+
| | | | | | |
+-------------------------+----------+----------+----------+-----------+--------+
| Total Pellets Produced | | |2,339.6 | 1,883.3 | 24.2 |
+-------------------------+----------+----------+----------+-----------+--------+
| 62% Fe | | |1,219.8 | 905.9 | 34.7 |
+-------------------------+----------+----------+----------+-----------+--------+
| 65% Fe | | |1,119.8 | 977.4 | 14.6 |
+-------------------------+----------+----------+----------+-----------+--------+
| | | | | | | |
+-------------------------+----------+----------+----------+--------+--+--------+
Costs
Cost pressures increased in the first quarter of 2010. Local PPI inflation of 7%
and cyclical price increases for inputs such as oil and steel resulted in an
increase in the Group's C1 cash cost. This was mitigated by a 4% depreciation of
the hryvnia to the US dollar. The average UAH/US$ exchange rate for the period
ended 31 March 2010 was UAH/US$8.0 compared to UAH/US$7.7 for the equivalent
2009 period. Furthermore, operating efficiencies from the Business Improvement
Programme ("BIP"), helped to further offset local cost inflation. Overall, the
Group's C1 cash cost increased 3% to US$38.48 per tonne compared with US$37.38
for the equivalent 2009 period.
Higher sales volumes of 29% resulted in a 3% reduction in the Group's DAF/FOB
selling and distribution expense per tonne. Selling and distribution expenses
also reflected the change in our geographic sales profile as more product was
shipped by rail to our Traditional customers and less product was shipped to our
Growth markets.
Capital Expenditure
The Group placed all significant capital expenditures on hold in October 2008 in
response to the global financial crisis. In 2009 we did, however, continue to
moderately invest in our growth projects so as to progress critical path items
and maintain value.
With the subsequent material improvement in iron ore markets and current pricing
levels the Group is in a position to increase its level of expenditure and is
actively engaged in a process of re-evaluation of project budgets and schedules.
The projects described below are discretionary and can be undertaken when
funding and market conditions allow.
Northern Pushback and mine life extension of existing pit (Ferrexpo Poltava
mine)
The Northern Pushback project focuses on extending the current pit to access
additional high quality K22 ore at the northern end of the Lavrikovskoe deposit.
The extension is expected to increase mine capacity by approximately 3.5 million
tonnes per annum of ore which, after processing, should convert into
approximately 1.2 million tonnes per annum of 65% iron content pellets. The
project primarily involves an additional mining fleet as well as mine stripping
operations.
The Northern Pushback project was initiated in 2007 and subsequently put on hold
in October 2008 before any significant level of stripping activity had been
undertaken. The projected overall cost was initially estimated at US$159
million. The Group is engaged in revaluating the project's schedule and budgets,
and is expected to resume the project when market conditions allow.
Ferrexpo is also conducting a program of additional stripping to extend the life
of the existing pit. Combined with the Northern Pushback project, management
estimates this could deliver production of 32 million tonnes per annum of iron
ore compared to current level of approximately 28.5 million tonnes per annum,
and extend the life of the Poltava mine until approximately 2038. The additional
mining fleet is expected to be delivered in the second half of 2010, following
which Ferrexpo Poltava will re-initiate stripping operations.
Quality upgrade at current processing facilities
We are implementing a plan to improve the grade of iron ore concentrate by
implementing additions to and modifications of the existing crushing and
concentrating facilities with the aim of providing the capability to produce up
to 100% proportion of 65% iron content pellets. Our facilities are currently
limited to producing up to 50% proportion of 65% iron content pellets.
Development will include additional grinding facilities within the current
concentrator plant to achieve a finer grade as well as a second flotation plant
to allow the concentrate to be processed through the flotation stage producing a
single grade suitable for 65% iron content pellets. The expected timeframe for
this project is three years. Once the project is completed the Group envisages a
step change to 100% proportion of 65% iron content pellet production, or that it
will be able to vary the proportions of 65% and 62% iron content pellets to
optimise profitability.
Developing the Yeristovo deposit
We hold a licence to mine the Yeristovo iron ore deposit, which is adjacent to
the current Poltava mine. The deposit has probable reserves of approximately 632
million tonnes of iron ore, with an average total iron content of approximately
34%. Yeristovo will be managed and operated independently from the existing
mine, although its proximity to the existing pit will facilitate the sharing of
certain facilities and resources, particularly during the early stages of
operation, and should allow current best practice being used in the Poltava mine
to be introduced immediately at the Yeristovo mine.
The Yeristovo project was initiated in 2006. In 2008 we completed a feasibility
study for the development of this deposit. Management currently estimates the
total cost for the completion of the mine, processing plant and pelletiser at
around US$1.5 billion. However, this estimate is currently being re-evaluated
and re-engineered and will be presented to the Board in the later part of 2010
with a view to increasing our level of activity. Currently, only capital
expenditure for mining has been approved, with a projected cost of US$225
million in order to achieve first ore in 2013.
In terms of minimising the execution risk to the financial position of the
Group, we have the ability to develop Yeristovo in stages, first developing the
mine, then adding concentrating and processing capacity and finally pelletising
capacity. This will provide both investment flexibility should market conditions
or the Group's cash flow position vary from plan, and allow the Group to benefit
from increases in incremental production.
Accordingly, we anticipate that the project will increase the production of
pellets initially processed by the existing Poltava mining facility from the
current 9.0 million tonnes to 12.0 million tonnes per annum. This will be due to
additional ore from the new Yeristovo mine supplemented by ore from the Northern
Pushback expansion project currently planned at the Poltava mining facility.
Once completed, it is anticipated that the Yeristovo open cut mine will produce
sufficient new ore for the production of around 10 million tonnes per annum of
merchant concentrate on a standalone basis, with the addition of crushing and
concentrating facilities estimated to cost around US$750 million. Depending on
further investment a pelletising plant estimated at around US$500 million, could
be constructed to convert merchant concentrate into between 5.0 and 7.5 million
tonnes of pellets should anticipated market conditions allow a premium for
pellets.
As a result, it is anticipated that ore from Yeristovo will allow annual pellet
production to increase by 2018 from current levels of approximately 9.0 million
tonnes of pellets per annum to between 12.0 million tonnes and 19.5 million
tonnes of pellets per annum, with the balance of any iron ore output to be
processed and sold as merchant concentrate.
Health and Safety
As with the 2009 financial year, there were no fatalities at our operations
during the first quarter of 2010. We continue to work with Du Pont Safety
Resources to strive for further improvements across all areas of corporate
social responsibility, especially safety. One aspect of our increasing focus on
health and safety is more frequent reporting of Lost Time Injuries ("LTI")
although this does not necessarily mean that the underlying rate increased
during the period. For the first quarter of 2010, 11 LTI's were reported
compared with 1 LTI in the first quarter of 2009.
Strategy and Outlook
Ferrexpo intends to continue to produce at full capacity and to manage its cost
position. Provided there is not a repeat of the collapse in demand witnessed in
2009, this should allow us to benefit from the improved pricing environment in
2010. The Group is also re-evaluating the costs and schedules for implementation
of its medium term growth projects.
Operating and financial performance
Sales and iron ore pellet prices
The following table provides a breakdown of revenue per product type sold.
+----------------------+----------+----------+
| (US$ million) | 3 | 3 |
| | months | months |
| | ended | ended |
| |31.03.10 |31.03.09 |
+----------------------+----------+----------+
| Export sales: | | |
+----------------------+----------+----------+
| 62% iron content | 92.0 | 70.0 |
| pellets | | |
+----------------------+----------+----------+
| 65% iron content | 95.3 | 67.5 |
| pellets | | |
+----------------------+----------+----------+
| Total | 187.4 | 137.8 |
+----------------------+----------+----------+
| Domestic sales: | | |
+----------------------+----------+----------+
| 62% pellets | 0.1 | 3.3 |
+----------------------+----------+----------+
| Non-pellet sales:1 | 1.5 | 0.2 |
+----------------------+----------+----------+
| Total revenue | 188.9 | 141.3 |
+----------------------+----------+----------+
1Non-pellet sales primarily relate to the sale of gravel.
Revenue increased by 33.7% to US$188.9 million for the three months ended 31
March 2010 (1Q 2009: US$141.3 million). This was driven by the global economic
recovery following the downturn in 2009, with improved demand from our core
customer base in our Traditional markets in Central and Eastern Europe. Sales
volumes increased 29.2% to 2,226 kilotonnes in the first three months of 2010
compared with 1,722 kilotonnes in the in the corresponding three month period.
Production
+------------------------+----------+----------+----------+
| | 3 | 3 | Year |
| | months | months | ended |
| | ended | ended |31.12.09 |
| |31.03.10 |31.03.09 | |
+------------------------+----------+----------+----------+
| (in thousand tonnes) | | | |
+------------------------+----------+----------+----------+
| 62% iron content | 1,220 | 906 | 4463 |
| pellets | | | |
+------------------------+----------+----------+----------+
| 65% iron content | 1,120 | 977 | 4304 |
| pellets | | | |
+------------------------+----------+----------+----------+
| Total pellets (incl. | 2,340 | 1,883 | 8,767 |
| 3rd party concentrate) | | | |
+------------------------+----------+----------+----------+
Ferrexpo mined iron ore at full capacity through-out the first quarter of 2010
producing 2.2 million tonnes of pellet from own ore, a 14.8% increase compared
with the first quarter of 2009. It also purchased 177 thousand tonnes of pellet
equivalent third party concentrate in the first quarter of 2010 (1Q 2009: nil).
Third party iron ore concentrate is converted into pellets to utilise spare
pelletising capacity where this provides adequate margins. In total, pellet
production increased 24.2% over the comparable period. The production split
between 62% and 65% iron content pellets was 52.1% and 47.9% respectively
broadly similar to 2009 levels.
Geographic breakdown of pellet sales volumes
+--------------+----------+----------+----------+
| | 3 | 3 | Year |
| | months | months | ended |
| | ended | ended | 31.12.09 |
| | 31.03.10 | 31.03.09 | |
+--------------+----------+----------+----------+
| Traditional1 | 65% | 26% | 45% |
+--------------+----------+----------+----------+
| Natural2 | 12% | 6% | 8% |
+--------------+----------+----------+----------+
| Growth3 | 23% | 65% | 39% |
+--------------+----------+----------+----------+
| Domestic | 0% | 3% | 7% |
+--------------+----------+----------+----------+
| Total | 100% | 100% | 100% |
+--------------+----------+----------+----------+
1Traditional markets include Austria, Ukraine, Czech Republic, Poland, Slovakia,
Romania, Bulgaria and Russia.
2Natural markets include Western Europe, Turkey and the Middle East
3Growth markets include China, India, Japan and South Korea
The geographic mix of pellet sales volumes switched between Growth and
Traditional markets in the first quarter of 2010 compared with the first quarter
of 2009 reflecting renewed demand growth from our customers in Central and
Eastern Europe.
Average pellet prices (US$ per tonne)
+----------------------+----------+----------+----------+
| (US$ per tonne) | 3 | 3 | Year |
| | months | months | ended |
| | ended | ended |31.12.09 |
| |31.03.10 |31.03.09 | |
+----------------------+----------+----------+----------+
| 62% iron content | 83.9 | 78.2 | 68.59 |
| pellets | | | |
+----------------------+----------+----------+----------+
| 65% iron content | 84.6 | 85.9 | 73.48 |
| pellets | | | |
+----------------------+----------+----------+----------+
| Average total pellet | 84.2 | 81.8 | 71.8 |
| price (incl freight) | | | |
+----------------------+----------+----------+----------+
| Average total | 80.2 | 76.7 | 71.3 |
| DAF/FOB pellet price | | | |
+----------------------+----------+----------+----------+
Average pellet prices on a DAF/FOB basis increased 4.6% to US$80.2 per tonne
compared with the first quarter of 2009 (US$76.7 per tonne) and 12.5% when
compared to the average achieved price for the 2009 full year (US$61.3 per
tonne). As most of the pricing for the quarter was at the annual (1 April 2009
to 31 March 2010) agreed Benchmark level, the improvement in the average pellet
price was due to a price increase for a customer priced on a calendar year basis
together with incremental sales on the spot market and an improvement in
customer mix as the geographic sales returned to a normal mix.
Cost of sales
C1 cash costs
The Group defines the C1 cost of production per tonne as the cash costs of
production of iron ore divided by production volume of iron ore. This excludes
costs such as depreciation, pension costs, stock movement, costs of purchased
ore and concentrate, production cost of gravel, and one-off items.
For the three months ended 31 March 2010, Ferrexpo's average C1 cash cost
increased 2.9% to US$38.48 per tonne compared with US$37.38 for the comparable
2009 period. The increase was, however, lower than local inflation rate of 6.9
per cent for the period. The Group also experienced cost increases from cyclical
inputs such as oil and steel. The Business Improvement Programme ("BIP"), which
focuses on operational efficiencies and productivity initiatives, has continued
to partly mitigate these pressures and the Group also benefitted from a 3.7%
depreciation of the hryvnia against the US dollar.
+-----------------------------+----------+----------+----------+
| |3 months |3 months | Year |
| | ended | ended | ended |
| |31.03.10 |31.03.09 |31.12.09 |
+-----------------------------+----------+----------+----------+
| (US$ per tonne of pellets) | | | |
+-----------------------------+----------+----------+----------+
| Other materials | 3.23 | 2.93 | 2.61 |
+-----------------------------+----------+----------+----------+
| Electricity | 10.37 | 9.37 | 9.12 |
+-----------------------------+----------+----------+----------+
| Salary | 4.54 | 4.87 | 4.38 |
+-----------------------------+----------+----------+----------+
| Spare parts and replaceable | 3.10 | 3.32 | 3.15 |
| equipment | | | |
+-----------------------------+----------+----------+----------+
| Maintenance services and | 3.15 | 2.34 | 2.56 |
| consumables | | | |
+-----------------------------+----------+----------+----------+
| Fuel (incl. diesel fuel) | 3.67 | 3.17 | 3.17 |
+-----------------------------+----------+----------+----------+
| Gas | 5.2 | 5.35 | 4.29 |
+-----------------------------+----------+----------+----------+
| Taxes | 0.69 | 0.75 | 0.73 |
+-----------------------------+----------+----------+----------+
| Grinding media | 3.74 | 4.10 | 3.37 |
+-----------------------------+----------+----------+----------+
| Explosives and blasting | 0.77 | 1.19 | 1.05 |
| materials | | | |
+-----------------------------+----------+----------+----------+
| Total C1 cost per tonne | 38.48 | 37.38 | 34.44 |
+-----------------------------+----------+----------+----------+
| Production from own ore, kt | 2,162 | 1,883 | 8,609 |
+-----------------------------+----------+----------+----------+
Energy requirements including electricity, fuel and natural gas accounted for
50.0% of total C1 costs for the period, this was at a similar level to 2009
where energy accounted for 47.9% of total costs. Gas requirements generally
increase in the first quarter of a year due to colder weather conditions. The
electricity price per tonne of pellets produced was in line with the fourth
quarter of 2009 due to a tariff increase in December 2009. Other commodity
inflation in the first quarter related to increased steel prices for grinding
media.
Local inflation, as shown in the table below, of approximately 6.9% contributed
to cost increases during the period although this was offset to some extent by a
3.7% depreciation of the hryvnia to the US dollar. The average UAH/US$ exchange
rate for the period ended 31 March 2010 was UAH/US$8.0 compared to UAH/US$7.7
for the period ended 31 March 2009. Operating efficiencies from the BIP also
helped to mitigate local cost inflation.
+----------------------+----------+----------+----------+----------+
| | 3 | Year | Year | Year |
| | months | ended | ended | ended |
| | ended |31.12.09 |31.12.08 |31.12.07 |
| |31.03.10 | | | |
+----------------------+----------+----------+----------+----------+
| Consumer price index | 4.7 | 15.9 | 25.2 | 12.8 |
| | | | | |
+----------------------+----------+----------+----------+----------+
| Producer price index | 6.9 | 6.5 | 35.5 | 19.5 |
| | | | | |
+----------------------+----------+----------+----------+----------+
Source: National Bank of Ukraine.
The table below illustrates over a number of years how the BIP has contributed
to improved operational performance.
+----------------+---------------------+-------+-------+-------+-------+-------+
| | UOM | 2009 | 2008 | 2007 | 2006 | 2005 |
+----------------+---------------------+-------+-------+-------+-------+-------+
| Electricity | kWt per ton of |184.6 |183.7 |190.9 |195.6 |205.5 |
| | pellets | | | | | |
+----------------+---------------------+-------+-------+-------+-------+-------+
| Gas | m3 per ton of | 16.3 | 17.4 | 18.4 | 19.2 | 22.0 |
| | pellets | | | | | |
+----------------+---------------------+-------+-------+-------+-------+-------+
| Employees | Volume of pellets | 1.4 | 1.3 | 1.2 | 1.0 | 0.7 |
| | per employee | | | | | |
+----------------+---------------------+-------+-------+-------+-------+-------+
Overall, cost of sales for the three months ended 31 March 2010 was US$100.4
million (1Q 2009: US$70.9 million). Apart from the impact of C1 cash costs
discussed above cost of sales also includes third-party iron ore concentrate
purchases which were converted into pellets (in the first quarter of 2009 no
third part concentrate was processed). During the three months ended 31 March
2010, Ferrexpo Poltava produced 177 kilotonnes of pellets from third-party
materials.
Selling and distribution expenses
The main components of Ferrexpo's marketing and distribution costs are railway
freight costs to the Ukrainian border as well as port charges and international
freight expenses for pellets shipped by sea and ocean vessels to customers on
DES/CFR basis.
The following table highlights the selling and distribution expenses for the
periods indicated:
+------------------------------------+----------+----------+----------+
| (US$ million unless otherwise | 3 | 3 | Year |
| stated) | months | months | ended |
| | ended | ended |31.12.09 |
| |31.03.10 |31.03.09 | |
+------------------------------------+----------+----------+----------+
| Railway transportation | 20,231 | 14,115 | 69,477 |
+------------------------------------+----------+----------+----------+
| Port charges | 7,820 | 8,955 | 35,295 |
+------------------------------------+----------+----------+----------+
| International freight | 8,581 | 8,822 | 45,156 |
+------------------------------------+----------+----------+----------+
| Other (commissions, insurances, | 2,750 | 1,859 | 12,338 |
| personnel, depreciation, | | | |
| advertising...) | | | |
+------------------------------------+----------+----------+----------+
| Total Selling and Distribution | 39,382 | 33,751 | 162,266 |
| expenses | | | |
+------------------------------------+----------+----------+----------+
| Total Sales volume, kt | 2,225 | 1,722 | 9,015 |
+------------------------------------+----------+----------+----------+
| Cost per tonne of pellets sold | 17.7 | 19.6 | 18.0 |
| (incl freight) | | | |
+------------------------------------+----------+----------+----------+
| DAF/FOB per tonne of pellets sold | 13.9 | 14.4 | 13.0 |
+------------------------------------+----------+----------+----------+
Total selling and distribution expenses increased 16.7% to US$39.4 million,
compared to US$33.8 million in the three months ended 31 March 2009. The
increase was a function of higher sales volumes and a return of our geographic
sales mix to more normal patterns. There was no change to railway tariffs in the
first quarter of 2010 or 2009.
Sales volumes increased 29.2% in the period under review. We sold 2.2 million
tonnes of pellets in the first quarter of 2010 compared with 1.7 million tonnes
in the first quarter of 2009.
Of the volumes sold, 64.7% was sold to our Traditional customers in Central and
Eastern Europe compared with only 26.4% in the first quarter of 2009. This
resulted in a 43.3% increase in railway transportation costs to US$20.2 million
in the first quarter of 2010, compared to US$14.1 million in the first quarter
of 2009, as our Traditional customers largely receive their product by rail.
Port charges correspondingly reduced 12.7% to US$7.8 million, compared to US$9.0
million in the first quarter of 2009, reflecting lower seaborne sales to Growth
markets as their share of sales volume fell to 22.8% in the first quarter of
2010 compared with 64.8% in the first quarter of 2009.
International freight costs were US$8.6 million, in line with the equivalent
2009 period. Although we did not ship as much to Growth markets during the
quarter we increased barge shipments to a customer in Central Europe. We also
increased shipments to Natural markets, which accounted for 12.4% of sales for
the period compared to 5.6% in the first quarter of 2009.
When combined with the effect of a 29.3% increase in sales volumes, the selling
and distribution expenses per tonne (excluding international freight and
insurance) decreased by 3.5% to US$13.9 per tonne compared with US$14.4 per
tonne for first quarter of 2009.
General and administrative expenses
General and administrative expenses were US$11.4 million for the three months
ended 31 March 2010 (1Q 2009: US$10.7 million) due to inflation in Ukraine and
increased activity related to projects and business development.
Other income and expense
Other income was US$0.8 million for the three months ended 31 March 2010 (1Q
2009: US$1.7 million). The decrease was primarily related to lower sales of
equipment spare parts. Other expenses decreased US$0.1 million to US$0.5 million
for the three months ended 31 March 2010 compared with the equivalent 2009
period.
EBITDA
We define EBITDA as profit from continuing operations before tax and finance
plus depreciation and amortisation (included in cost of sales, administrative
expenses and selling and distribution costs) and non-recurring cash items
included in other income and other expenses plus the net gains and losses from
disposal of investments and property, plant and equipment.
EBITDA increased by 29.6% to US$46.0 million for the three months ended 31 March
2010 compared with US$35.5 million for the three months ended 31 March 2009. The
increase was due to 29.2% higher sales volumes and a 4.5% higher average DAF/FOB
sales price. This was offset by a 2.9% increase in C1 cash costs per tonne. The
EBITDA margin for the first quarter of 2010 was 24.3% compared with 25.1% for
the first quarter of 2009.
Write down of VAT receivable
The Ukrainian Cabinet of Ministers published on 1 June 2010 that the government
intends to convert outstanding overdue VAT balances into government bonds with a
coupon interest rate of 5.5% per annum paid semi annually with 10 half-yearly
principal repayments.
Until further information is provided uncertainty exists as to the tradability
of the bonds, the exact timing and the process of conversion. It is expected
that the amount available for conversion into VAT bonds will relate to the
outstanding VAT receivable as at 31 December 2009 amounting to US$81.3 million.
Accounting standards require such financial instruments, when issued, to be fair
valued, or, if no market exists, an estimate to be made as to the market value.
Market yields on Ukrainian domestic hryvnia debt currently range between 12.0%
to 16.0% and have recently been volatile. If these yields were to continue at
these levels, they would be higher than the coupon interest rate on the proposed
new bond issue. As a result, a one off fair value adjustment could be realised
on the initial recognition of this financial instrument. Whilst it is not
possible to value this instrument exactly prior to its issue, an estimated gross
charge, before any tax deductions of US$15.0 million, has been recorded in the
income statement to reflect management's estimate of the difference between the
amount of the VAT receivable that is refundable and the expected fair value of
the government bond to be issued in settlement of this debt. This estimate will
be revised when the final terms, conditions and features of the new financial
instrument are known.
Management believe that the write-down is an exceptional occurrence which is
unlikely to be repeated, and that this should be taken into account in order to
obtain a proper understanding of the Group's financial performance. The
write-down has accordingly been disclosed as a separate line item in the Group's
consolidated income statement.
Finance income and expense
Finance income decreased by US$0.5 million to US$0.3 million for the three
months ended 31 March 2010 (1Q 2009: US$0.8 million) due to lower cash balances
following reduced operating cashflows in 2009 and higher trade receivables
outstanding. At the end of the first quarter 2010 the Group had a cash balance
of US$22.8 million compared with US$107.3 million at the end of the first
quarter of 2009. Finance expense increased to US$7.9 million for the three
months ended 31 March 2010 (1Q 2009: US$5.5 million) due to higher interest
rates under the new pre-export financing facility (LIBOR +7.0% as compared with
LIBOR + 2.4% under the old facility). Gross borrowings for the period were
US$309.1 million compared to US$307.7 million in the first quarter of 2009.
Foreign exchange gain/(loss)
Operating foreign exchange gains and losses result from the re-valuation of
monetary items on the balance sheet, such as trade receivables and trade
payables, which are denominated in a foreign currency of a subsidiary into the
Group reporting currency at the balance sheet date.
The change in the operating foreign exchange differences is related to the
fluctuations in the UAH/US$ over the comparable periods. The Ukrainian hryvnia
depreciated 3.7% during the period against the US dollar from an average of UAH
7.70 for the period ended 31 March 2009 to UAH 7.99 for the period ended 31
March 2010.
Operating foreign exchange losses were US$0.4 million for the three months ended
31 March 2010 compared with an operating foreign exchange gain of US$0.3 million
for the three months ended 31 March 2009.
Non-operating foreign exchange gains and losses result from the re-valuation of
non-monetary items on the balance sheet, such as financial liabilities, loans,
taxes and dividends, which are denominated in a foreign currency of a subsidiary
into the Group reporting currency at the balance sheet date.
Non-operating foreign exchange gains decreased to US$0.6 million for the three
months ended 31 March 2010 (1Q 2009: US$1.4 million). The change primarily
related to CHF/US$ exchange rate movements and translation of the liabilities of
Ferrexpo AG, which are denominated in Swiss francs. Over the comparable periods
the CHF appreciated 2.5% to the US dollar.
Income tax expense
Profit before tax after the exceptional write down of the VAT receivable was
US$16.1 million for the three months ended 31 March 2010, compared with US$24.3
million for the three months ended 31 March 2009. Excluding the exceptional
item, profit before tax was US$31.1 million representing a 28.0% increase
compared with the equivalent period in 2009. This resulted in an income tax
expense of US$4.5 million compared with US$2.7 million for the three months
ended 31 March 2009. The exceptional charge for the write down of the VAT
receivable is not expected to be tax deductible. This contributed to a higher
effective income tax rate of 28.0% for the first quarter of 2010 compared with
12.2% for the equivalent 2009 period. The effective tax rate is influenced by
the Group's mix of profits primarily between Switzerland and Ukraine and
treatment of special items in the local jurisdictions for tax purposes.
Statement of financial position and cash flow
The Group achieved good cash flows during the period particularly in light of
delayed VAT receipts and increased trade receivables. Operating cash flow before
working capital charges increased 37.4% in the period to US$46.3 million (1Q
2009: US$33.7 million). Net cash flows from operating activities, however, was
(US$2.6) million for the three month period ended 31 March 2010 compared with a
US$38.6 million inflow in the corresponding period in 2009. The working capital
outflow of US$41.8 million was primarily due to an increase in trade receivables
as a result of a price increase negotiated with a customer on a calendar year
basis and US$25.0 million for delayed recovery of VAT receipts.
During the three month period to 31 March 2010, the VAT receivable increased
from US$81.3 million as of 31 December 2009 to US$106.3 million. The increase in
VAT receivable was due to VAT paid for local purchases of goods and services in
Ukraine and the import of equipment during the period.
The Group, however, has reduced the total VAT receivable by US$15.0 million to
US$91.3 million. This write down is related to the expected conversion of the
outstanding VAT receivable as of 31 December 2009 into Government bonds. See
note above on Write down of VAT receivable. The amounts have been classified in
the accounts as repayable within one year as it is intended to sell the
Government bonds within this period if market conditions allow.
During the period, the Group spent US$24.5 million on capital expenditure, a
13.0% increase compared with the first quarter of 2009 (1Q 2009: US$2.71
million). Most of this expenditure was for the Yeristovo project which included
purchase of CAT trucks for approximately US$15.0 million.
Borrowings
Net financial indebtedness increased 11.2% to US$286.4 million compared with
US$257.7 million at 31 December and 41.6% as at 31 March 2009 (US$202.2 million)
following the increase in working capital requirements.
The Group's primary source of financing is a pre-export facility of US$230
million. The new facility was available from 1 January 2010 and was drawn down
in full to repay existing loans. The facility matures 36 months from 1 January
2010 and is to be repaid in 24 equal monthly instalments with the first
instalment falling due in January 2011.
Interim consolidated income statement
+---------------------------------+-------+-------------+-------------+-----------+
| US$'000 |Notes | 3 | 3 | Year |
| | | months | months | ended |
| | | ended | ended | 31.12.09 |
| | | 31.03.10 | 31.03.09 | (audited) |
| | | (unaudited) | (unaudited) | |
+---------------------------------+-------+-------------+-------------+-----------+
| | | 3 | 3 | 12 |
| | | months | months | months |
+---------------------------------+-------+-------------+-------------+-----------+
| Revenue | 4 | 188,923 | 141,320 | 648,667 |
+---------------------------------+-------+-------------+-------------+-----------+
| Cost of sales | 5 | (100,371) | (70,918) | (341,067) |
+---------------------------------+-------+-------------+-------------+-----------+
| Gross profit | | 88,552 | 70,402 | 307,600 |
+---------------------------------+-------+-------------+-------------+-----------+
| Selling and distribution | 6 | (39,382) | (33,751) | (162,266) |
| expenses | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| General and administrative | 7 | (11,440) | (10,715) | (43,161) |
| expenses | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Other income | | 843 | 1,735 | 4,102 |
+---------------------------------+-------+-------------+-------------+-----------+
| Other expenses | | (475) | (622) | (3,418) |
+---------------------------------+-------+-------------+-------------+-----------+
| Operating foreign exchange | 8 | (387) | 251 | 2,534 |
| (loss) / gain | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Operating profit from | | 37,711 | 27,300 | 105,391 |
| continuing operations before | | | | |
| adjusted items | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Write-down of VAT receivable | 13 | (15,000) | - | - |
| | / | | | |
| | 21 | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Asset reversals / (impairments) | 9 | - | 31 | (2,757) |
+---------------------------------+-------+-------------+-------------+-----------+
| Share of profit of associates | | 532 | 330 | 1,304 |
+---------------------------------+-------+-------------+-------------+-----------+
| Negative goodwill | | - | - | 503 |
+---------------------------------+-------+-------------+-------------+-----------+
| Initial public offering costs | | (27) | (195) | (427) |
+---------------------------------+-------+-------------+-------------+-----------+
| (Loss) / gain on disposal of | | (140) | 180 | 213 |
| property, plant and equipment | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Gain on disposal of intangibles | | 4 | - | - |
| assets | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Profit before tax and finance | | 23,080 | 27,646 | 104,227 |
+---------------------------------+-------+-------------+-------------+-----------+
| Finance income | | 322 | 824 | 2,893 |
+---------------------------------+-------+-------------+-------------+-----------+
| Finance expense | | (7,952) | (5,581) | (23,718) |
+---------------------------------+-------+-------------+-------------+-----------+
| Non-operating foreign exchange | 8 | 606 | 1,436 | (2,552) |
| gain / (loss) | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Profit before tax | | 16,056 | 24,325 | 80,850 |
+---------------------------------+-------+-------------+-------------+-----------+
| Tax | | (4,495) | (2,724) | (9,852) |
+---------------------------------+-------+-------------+-------------+-----------+
| Profit for the period / year | | 11,561 | 21,601 | 70,998 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Attributable to: | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Equity shareholders of Ferrexpo | | 11,512 | 21,689 | 70,627 |
| plc | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Minority interests | | 49 | (88) | 371 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | 11,561 | 21,601 | 70,998 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Earnings per share: | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Basic (US cents) | 10 | 1.97 | 3.71 | 12.08 |
+---------------------------------+-------+-------------+-------------+-----------+
| Diluted (US cents) | 10 | 1.96 | 3.70 | 12.05 |
+---------------------------------+-------+-------------+-------------+-----------+
Interim consolidated statement of comprehensive income
+----------------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------------+-------------+-------------+-----------+
| Profit for the period / year | 11,561 | 21,601 | 70,998 |
+----------------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------------+-------------+-------------+-----------+
| Exchange differences on translating | | | |
| foreign operations | | | |
+----------------------------------------+-------------+-------------+-----------+
| Exchange differences arising during | 4,782 | - | (20,842) |
| the period / year | | | |
+----------------------------------------+-------------+-------------+-----------+
| Exchange differences arising on | 1,056 | - | (3,697) |
| hedging of foreign operations | | | |
+----------------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------------+-------------+-------------+-----------+
| Available-for-sale investments | | | |
+----------------------------------------+-------------+-------------+-----------+
| Gain / (loss) arising on | 638 | (124) | 400 |
| revaluation during the period / year | | | |
+----------------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------------+-------------+-------------+-----------+
| Income tax effect | (743) | 14 | 2,895 |
+----------------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------------+-------------+-------------+-----------+
| Other comprehensive income for the | 5,733 | (110) | (21,244) |
| period / year, net of tax | | | |
+----------------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------------+-------------+-------------+-----------+
| Total comprehensive income for the | 17,294 | 21,491 | 49,754 |
| period / year, net of tax | | | |
+----------------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------------+-------------+-------------+-----------+
| Total comprehensive income | | | |
| attributable to: | | | |
+----------------------------------------+-------------+-------------+-----------+
| Equity shareholders of Ferrexpo plc | 17,135 | 21,579 | 49,633 |
+----------------------------------------+-------------+-------------+-----------+
| Non-controlling interests | 159 | (88) | 121 |
+----------------------------------------+-------------+-------------+-----------+
| | 17,294 | 21,491 | 49,754 |
+----------------------------------------+-------------+-------------+-----------+
Interim consolidated statement of financial position
+---------------------------------+-------+-------------+-------------+-----------+
| US$'000 |Notes | 3 | 3 | Year |
| | | months | months | ended |
| | | ended | ended | 31.12.09 |
| | | 31.03.10 | 31.03.09 | (audited) |
| | | (unaudited) | (unaudited) | |
+---------------------------------+-------+-------------+-------------+-----------+
| Assets | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Property, plant and equipment | 12 | 477,067 | 427,057 | 452,100 |
+---------------------------------+-------+-------------+-------------+-----------+
| Goodwill and other intangible | | 101,109 | 103,815 | 100,354 |
| assets | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Investments in associates | | 20,448 | 18,822 | 19,915 |
+---------------------------------+-------+-------------+-------------+-----------+
| Available-for-sale financial | | 4,325 | 4,497 | 2,917 |
| assets | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Deferred tax asset | | 17,118 | 17,276 | 13,673 |
+---------------------------------+-------+-------------+-------------+-----------+
| Other non-current assets | | 7,171 | 9,212 | 9,824 |
+---------------------------------+-------+-------------+-------------+-----------+
| Total non-current assets | | 627,238 | 580,679 | 598,783 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Inventories | | 65,681 | 67,395 | 59,636 |
+---------------------------------+-------+-------------+-------------+-----------+
| Trade and other receivables | | 50,588 | 42,101 | 38,117 |
+---------------------------------+-------+-------------+-------------+-----------+
| Prepayments and other current | | 23,630 | 15,071 | 19,394 |
| assets | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Income taxes recoverable and | | 4,760 | 11,641 | 9,741 |
| prepaid | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Other taxes recoverable and | 13 | 91,293 | 51,699 | 81,284 |
| prepaid | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Available-for-sale financial | | - | 626 | 626 |
| assets | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Cash and cash equivalents | 14 | 22,800 | 107,312 | 11,991 |
+---------------------------------+-------+-------------+-------------+-----------+
| Total current assets | | 258,752 | 295,845 | 220,789 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Total assets | | 885,990 | 876,524 | 819,572 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Equity and liabilities | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Share capital | 15 | 121,628 | 121,628 | 121,628 |
+---------------------------------+-------+-------------+-------------+-----------+
| Share premium | | 185,112 | 185,112 | 185,112 |
+---------------------------------+-------+-------------+-------------+-----------+
| Other reserves | | (341,884) | (329,774) | (347,858) |
+---------------------------------+-------+-------------+-------------+-----------+
| Retained earnings | | 512,687 | 491,787 | 501,175 |
+---------------------------------+-------+-------------+-------------+-----------+
| Equity attributable to equity | | 477,543 | 468,753 | 460,057 |
| shareholders of the parent | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Non-controlling interest | | 11,546 | 11,681 | 11,387 |
+---------------------------------+-------+-------------+-------------+-----------+
| Total equity | | 489,089 | 480,434 | 471,444 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Interest-bearing loans and | 16 | 214,553 | 231,491 | 18,143 |
| borrowings | /17 | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Trade and other payables | | - | 85 | - |
+---------------------------------+-------+-------------+-------------+-----------+
| Defined benefit pension | | 15,490 | 13,651 | 14,529 |
| liability | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Provision for site restoration | | 1,308 | 1,103 | 1,268 |
+---------------------------------+-------+-------------+-------------+-----------+
| Deferred tax liability | | 4,963 | 5,290 | 3,739 |
+---------------------------------+-------+-------------+-------------+-----------+
| Total non-current liabilities | | 236,314 | 251,620 | 37,679 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Interest-bearing loans and | 16 | 94,592 | 76,187 | 251,379 |
| borrowings | / | | | |
| | 17 | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Trade and other payables | | 35,349 | 42,046 | 27,926 |
+---------------------------------+-------+-------------+-------------+-----------+
| Accrued liabilities and | | 10,990 | 11,095 | 12,146 |
| deferred income | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Income taxes payable | | 13,072 | 7,967 | 11,105 |
+---------------------------------+-------+-------------+-------------+-----------+
| Other taxes payable | | 6,584 | 7,175 | 7,893 |
+---------------------------------+-------+-------------+-------------+-----------+
| Total current liabilities | | 160,587 | 144,470 | 310,449 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Total liabilities | | 396,901 | 396,090 | 348,128 |
+---------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Total equity and liabilities | | 885,990 | 876,524 | 819,572 |
+---------------------------------+-------+-------------+-------------+-----------+
The financial statements were approved by the Board of Directors on 20 May 2010.
Interim consolidated statement of cash flow
+---------------------------------+-------+-------------+-------------+-----------+
| US$ 000 |Notes | Period | Period | Year |
| | | ended | ended | ended |
| | | 31.03.10 | 31.03.09 | 31.12.09 |
| | | (unaudited) | (unaudited) | (audited) |
+---------------------------------+-------+-------------+-------------+-----------+
| Net cash flows from operating | 19 | (2,607) | 38,568 | 76,869 |
| activities | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Cash flows from investing | | | | |
| activities | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Purchase of property, plant and | | (24,464) | (21,653) | (85,823) |
| equipment | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Proceeds from sale of property, | | - | (599) | 213 |
| plant and equipment | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Purchase of intangible assets | | (73) | - | (598) |
+---------------------------------+-------+-------------+-------------+-----------+
| Proceeds from sale of | | 42 | - | - |
| intangible assets | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Interest received | | 257 | 690 | 2,104 |
+---------------------------------+-------+-------------+-------------+-----------+
| Loans provided to associates | | - | 2,000 | 6,450 |
+---------------------------------+-------+-------------+-------------+-----------+
| Net cash flows used in | | (24,238) | (19,562) | (77,654) |
| investing activities | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Cash flows from financing | | | | |
| activities | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Proceeds from borrowings and | 16 | 249,513 | 19,526 | 35,637 |
| finance | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Repayment of borrowings and | 16 | (210,618) | (18,403) | (73,168) |
| finance | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Dividends paid to equity | | (1,048) | - | (36,325) |
| shareholders of the parent | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Dividends paid to | | - | (196) | (234) |
| non-controlling interest | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Net cash flows from financing | | 37,847 | 927 | (74,090) |
| activities | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Net increase / (decrease) in | | 11,002 | 19,933 | (74,875) |
| cash and cash equivalents | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Cash and cash equivalents at | | 11,991 | 87,822 | 87,822 |
| the beginning of the period / | | | | |
| year | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Currency translation | | (193) | (443) | (956) |
| differences | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
| Cash and cash equivalents at | 14 | 22,800 | 107,312 | 11,991 |
| the end of the period / year | | | | |
+---------------------------------+-------+-------------+-------------+-----------+
Interim consolidated statement of changes in equity
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| For the financial year | Attributable to equity shareholders of the parent |
| 2009 and the three months | |
| ended 31 March 2010 | |
+----------------------------+------------------------------------------------------------------------------------------------------------------------------------+
| US$ 000 | Issued | Share | Uniting |Treasury |Employee | Net |Trans-lation |Retained | Total |Non-controlling | Total |
| |capital |premium | of | share | Benefit |unreali-sed | reserve |earnings | capital | interests | equity |
| | | |interest | reserve | Trust | gains | | | and | | |
| | | | reserve | | reserve | reserve | | |reserves | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| At 1 January 2009 | 121,628 | 185,112 | 31,780 | (77,260) | (15,443) | 813 | (270,604) | 470,098 | 446,124 | 11,769 | 457,893 |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Profit for the period | - | - | - | - | - | - | - | 70,627 | 70,627 | 371 | 70,998 |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Other comprehensive income | - | - | - | - | - | 301 | (21,295) | - | (20,994) | (250) | (21,244) |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Total comprehensive income | - | - | - | - | - | 301 | (21,295) | 70,627 | 49,633 | 121 | 49,754 |
| for the period | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Equity dividends paid to | - | - | - | - | - | - | - | | - | - | - |
| shareholders of Ferrexpo | | | | | | | | | | | |
| plc | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Equity dividends paid by | - | - | - | - | - | - | - | (39,550) | (39,550) | - | (39,550) |
| subsidiary undertakings to | | | | | | | | | | | |
| minority shareholders | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Share based payments | - | - | - | - | 3,850 | | - | - | 3,850 | - | 3,850 |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Adjustments relating to | - | - | - | - | - | - | - | - | - | (503) | (503) |
| the increase in | | | | | | | | | | | |
| non-controlling interests | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| At 31 December 2009 | 121,628 | 185,112 | 31,780 | (77,260) | (11,593) | 1,114 | (291,899) | 501,175 | 460,057 | 11,387 | 471,444 |
| (audited) | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Profit for the period | - | - | - | - | - | - | - | 11,512 | 11,512 | 49 | 11,561 |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Other comprehensive income | - | | - | - | - | 565 | 5,058 | - | 5,623 | 110 | 5,733 |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Total comprehensive income | - | - | - | - | - | 565 | 5,058 | 11,512 | 17,135 | 159 | 17,294 |
| for the period | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| Share based payments | - | - | - | - | 351 | | - | - | 351 | - | 351 |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
| At 31 March 2010 | 121,628 | 185,112 | 31,780 | (77,260) | (11,242) | 1,679 | (286,841) | 512,687 | 477,543 | 11,546 | 489,089 |
| (unaudited) | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+-------------+--------------+----------+----------+-----------------+----------+
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
| For the three months ended | Attributable to equity shareholders of the parent |
| 31 March 2009 | |
+----------------------------+----------------------------------------------------------------------------------------------------------------------------------+
| US$ 000 | Issued | Share | Uniting |Treasury |Employee | Net |Trans-lation |Retained | Total |Non-controlling | Total |
| |capital |premium | of | share | Benefit |unrealised | reserve |earnings | capital | interests | equity |
| | | |interest | reserve | Trust | gains | | | and | | |
| | | | reserve | | reserve | reserve | | |reserves | | |
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
| At 1 January 2009 | 121,628 | 185,112 | 31,780 | (77,260) | (15,443) | 813 | (270,604) | 470,098 | 446,124 | 11,769 | 457,893 |
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
| Profit for the period | - | - | - | - | - | - | - | 21,689 | 21,689 | (88) | 21,601 |
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
| Other comprehensive income | - | - | - | - | - | (110) | | - | (110) | - | -110 |
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
| Total comprehensive income | - | - | - | - | - | (110) | - | 21,689 | 21,579 | (88) | 21,491 |
| for the period | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
| Share based payments | - | - | - | - | 1,050 | | - | - | 1,050 | - | 1,050 |
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
| At 31 March 2009 | 121,628 | 185,112 | 31,780 | (77,260) | (14,393) | 703 | (270,604) | 491,787 | 468,753 | 11,681 | 480,434 |
| (unaudited) | | | | | | | | | | | |
+----------------------------+---------+---------+----------+----------+----------+------------+--------------+----------+----------+-----------------+---------+
Notes to the interim condensed consolidated financial statements
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the 'Company') is incorporated in the United Kingdom with
registered office at 2-4 King Street, London, SW1Y 6QL, UK. Ferrexpo plc and its
subsidiaries (the 'Group') operate a mine and processing plant near Kremenchuk
in Ukraine, an interest in a port in Odessa and a sales and marketing company in
Switzerland and Kiev. The Group's operations are vertically integrated from iron
ore mining through to iron ore concentrate and pellet production. The Group's
mineral properties lie within the Kremenchuk Magnetic Anomaly and are currently
being exploited at the Gorishne-Plavninsky and Lavrikovsky deposits. These
deposits are being jointly mined as one mining complex.
The Group's operations are largely conducted through Ferrexpo plc's principal
subsidiary, Ferrexpo Poltava GOK Corporation. The Group comprises of Ferrexpo
plc and its consolidated subsidiaries as set out below:
+-------------------+---------------+---------------------+----------+----------+----------+
| | | | Equity interest |
| | | | owned |
+-------------------+---------------+---------------------+--------------------------------+
| Name | Country | Principal activity | 31.03.10 | 31.03.09 | 31.12.09 |
| | of | | % | % | % |
| | incorporation | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| | | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| Ferrexpo Poltava | Ukraine | Iron ore mining | 97.3 | 97.1 | 97.3 |
| GOK Corporation* | | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| Ferrexpo AG** | Switzerland | Sale of iron ore | 100.0 | 100.0 | 100.0 |
+-------------------+---------------+---------------------+----------+----------+----------+
| DP Ferrotrans*** | Ukraine | Trade, | 97.3 | 97.1 | 97.3 |
| | | transportation | | | |
| | | services | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| United Energy | Ukraine | Holding company | 97.3 | 97.1 | 97.3 |
| Company LLC*** | | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| Ferrexpo UK | England | Finance | 100.0 | 100.0 | 100.0 |
| Limited* | | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| Ferrexpo Services | Ukraine | Management services | 100.0 | 100.0 | 100.0 |
| Limited* | | & procurement | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| Ferrexpo Hong | China | Marketing services | 100.0 | 100.0 | 100.0 |
| Kong Limited* | | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| Ferrexpo | Ukraine | Iron ore mining | 98.6 | 98.5 | 98.6 |
| Yeristova GOK | | | | | |
| LLC*** | | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
| Ferrexpo Belanovo | Ukraine | Iron ore mining | 98.6 | - | 98.6 |
| GOK LLC**** | | | | | |
+-------------------+---------------+---------------------+----------+----------+----------+
* The Group's interest in these entities is held through Ferrexpo
AG.
** Ferrexpo AG was the holding company of the Group until, as a
result of the pre-IPO restructuring; Ferrexpo plc became the holding company on
24 May 2007.
*** The Group's interest in these entities is held through Ferrexpo
Poltava GOK Corporation.
*** The Group's interest in this entity is held through both Ferrexpo
AG and Ferrexpo Poltava GOK Corporation.
At 31 March 2010, the Group also holds through Ferrexpo Poltava GOK Corporation
an interest of 48.6% (31 March 2009: 48.5%; 31 December 2009: 48.6%) in TIS
Ruda, a Ukrainian port located on the Black Sea. As this is an associate, it is
accounted for using the equity method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim consolidated financial statements for the three months ended 31
March 2010 have been prepared in accordance with International Accounting
Standard ("IAS") 34 Interim Financial Reporting. The interim consolidated
financial statements do not include all of the information and disclosures
required in the annual financial statements, and should be read in conjunction
with the Group's annual financial statements. Risks in relation to the
facilities and re-financing are contained below.
The interim consolidated financial statements do not constitute statutory
accounts as defined in section 435 of the Companies Act 2006. The financial
information for the full year is based on the statutory accounts for the
financial year ended 31 December 2009. A copy of the statutory accounts for that
year, which were prepared in accordance with International Financial Reporting
Standards ('IFRS') issued by the International Accounting Standard Board
('IASB'), as adopted by the European Union up to 31 December 2009, has been
delivered to the Register of Companies. The auditors' report under section
498(2) of the Companies Act 2006 in relation to those accounts was unqualified
and did not contain a statement under 498(2) or 498(3) of the Companies Act
2006.
Going Concern
At the period end, the Group has a major debt facility of US$230,000,000 in
place which amortises over the period from 1 January 2011 to 31 December 2012.
The Group is of the view that it will be able to generate sufficient cash flows
to fully repay the debt by the end of this period, in compliance with the terms
of the facility agreements, and to operate the current operation with the
budgeted sustaining and developing capital expenditures.
The Group faces several risks to its business and strategy, which were included
in the Business Review section of the 2009 Annual Report & Accounts and these
risks still apply.
The Directors are of the view that the Group is a going concern and the interim
consolidated financial statements have been drawn up on this basis.
Changes in accounting policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2009, except for the adoption of new standards and interpretations as
of 1 January 2010, noted below:
IFRS 2Share-based Payment - Group Cash-settled Share-based Payment Transactions
(amendments)
The standard has been amended to clarify the accounting for group cash-settled
share-based payment transactions. This amendment also supersedes IFRIC 8 and
IFRIC 11. The adoption of this amendment did not have any impact on the
financial position or performance of the Group.
IFRS 3 Business combinations (revised) and IAS 27 Consolidated and separate
financial statements (revised)
The revised standards were issued in January 2008 and become effective for
financial years beginning on or after 1 July 2009. The changes will affect
future acquisitions or loss of control and transactions with non-controlling
interests. The adoption of these revised standards did not have any impact on
the financial position or performance of the Group.
IAS 28 Investments in associates (revised)
The principle adopted under IAS 27 (2008) that a loss of control is recognised
as a disposal and re-acquisition any retained interests at fair value is
extended by consequential amendment to IAS 28. The adoption of this revised
standard as of 1 January 2010 did not have any impact on the financial position
or performance of the Group.
IFRIC 17 Distributions of Non-cash Assets to Owners
This interpretation is effective for annual periods beginning on or after 1 July
2009. It provides guidance on how to account for non-cash distributions to
owners. The interpretation clarifies when to recognise a liability, how to
measure it and the associated assets, and when to derecognise the asset and
liability. The adoption of this interpretation did not have any impact on the
financial position or performance of the Group.
Improvements to IFRSs (issued April 2009)
In April 2009 the IASB issued its second omnibus of amendments to its standards,
primarily with a view to removing inconsistencies and clarifying wording. There
are separate transitional provisions for each standard. The adoption of the
following amendments resulted in changes to accounting policies but did not have
any impact on the financial position or performance of the Group.
The amendments to the following standards below did not have an impact on the
accounting policies, financial position or performance of the Group:
Ø IFRS 2 Share-based Payments
Ø IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Ø IFRS 8 Operating Segment Information
Ø IAS 1 Presentation of Financial Statements
Ø IAS 7 Statement of Cash Flows
Ø IAS 17 Leases
Ø IAS 36 Impairment of Assets
Ø IAS 38 Intangible Assets
Ø IFRIC 9 Reassessment of Embedded Derivatives
Ø IFRIC 16 Hedge of Net Investment in a Foreign Operation
Seasonality
The Group's operations are not affected by seasonality.
Note 3: Segment information
The group is managed as a single entity which produces, develops and markets its
principal product; iron ore pellets; for sale to the metallurgical industry. Per
the requirements of IFRS 8 Operating Segments, the Group presents its results in
a single segment which are disclosed in the income statement for the Group.
Note 4: Revenue
Revenue consisted of the following:
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Revenue from sales of ore pellet | | | |
| and concentrates: | | | |
+----------------------------------+-------------+-------------+-----------+
| Export | 187,352 | 137,781 | 612,829 |
+----------------------------------+-------------+-------------+-----------+
| Ukraine | 73 | 3,324 | 34,483 |
+----------------------------------+-------------+-------------+-----------+
| | 187,425 | 141,105 | 647,312 |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Revenue from services provided | 400 | 539 | 790 |
+----------------------------------+-------------+-------------+-----------+
| Revenue from other sales | 1,098 | (324) | 565 |
+----------------------------------+-------------+-------------+-----------+
| Total revenue | 188,923 | 141,320 | 648,667 |
+----------------------------------+-------------+-------------+-----------+
Export sales by geographical destination were as follows:
+----------------------------------+-------------+-------------+-----------+
| US$'000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| China | 39,830 | 93,538 | 241,882 |
+----------------------------------+-------------+-------------+-----------+
| Austria | 43,599 | 12,151 | 105,690 |
+----------------------------------+-------------+-------------+-----------+
| Serbia | 36,658 | 7,692 | 84,193 |
+----------------------------------+-------------+-------------+-----------+
| Slovakia | 20,078 | 14,281 | 77,537 |
+----------------------------------+-------------+-------------+-----------+
| Turkey | 25,777 | 7,336 | 39,272 |
+----------------------------------+-------------+-------------+-----------+
| Czech Republic | 14,155 | 2,783 | 21,293 |
+----------------------------------+-------------+-------------+-----------+
| India | - | - | 21,225 |
+----------------------------------+-------------+-------------+-----------+
| Hungary | 1,736 | - | 6,539 |
+----------------------------------+-------------+-------------+-----------+
| Germany | 5,519 | - | 5,573 |
+----------------------------------+-------------+-------------+-----------+
| Japan | - | - | 5,027 |
+----------------------------------+-------------+-------------+-----------+
| Other | - | - | 4,598 |
+----------------------------------+-------------+-------------+-----------+
| Total export revenue | 187,352 | 137,781 | 612,829 |
+----------------------------------+-------------+-------------+-----------+
During the period ended 31 March 2010 sales made to three customers accounted
for approximately 59.9% of the sales revenue (31 March 2009: 40.2%; 31 December
2009: 51.9%).
Sales made to two customers individually amounted to more than 10% of the total
sales. These are disclosed below:
+----------------------------------+-------------+-------------+-----------+
| US$'000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Customer A | 56,736 | 21,973 | 161,730 |
+----------------------------------+-------------+-------------+-----------+
| Customer B | 43,599 | 12,151 | 105,690 |
+----------------------------------+-------------+-------------+-----------+
Note 5: Cost of sales
Cost of sales consisted of the following:
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Materials | 15,181 | 15,355 | 60,607 |
+----------------------------------+-------------+-------------+-----------+
| Purchased ore and concentrate | 12,987 | - | 8,914 |
+----------------------------------+-------------+-------------+-----------+
| Electricity | 23,569 | 17,693 | 81,438 |
+----------------------------------+-------------+-------------+-----------+
| Personnel costs | 11,094 | 10,040 | 41,670 |
+----------------------------------+-------------+-------------+-----------+
| Spare parts and consumables | 4,741 | 3,182 | 13,007 |
+----------------------------------+-------------+-------------+-----------+
| Depreciation and amortisation | 6,024 | 5,719 | 23,370 |
+----------------------------------+-------------+-------------+-----------+
| Fuel | 8,350 | 5,940 | 23,969 |
+----------------------------------+-------------+-------------+-----------+
| Gas | 12,258 | 10,042 | 28,744 |
+----------------------------------+-------------+-------------+-----------+
| Repairs and maintenance | 8,800 | 6,997 | 38,503 |
+----------------------------------+-------------+-------------+-----------+
| Royalties and levies | 1,521 | 1,403 | 6,484 |
+----------------------------------+-------------+-------------+-----------+
| Stock movement | (5,461) | (6,414) | 10,543 |
+----------------------------------+-------------+-------------+-----------+
| Other | 1,307 | 961 | 3,818 |
+----------------------------------+-------------+-------------+-----------+
| Total cost of sales | 100,371 | 70,918 | 341,067 |
+----------------------------------+-------------+-------------+-----------+
Cost of sales is reconciled to "C1" costs in the following manner:
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Cost of sales | 100,371 | 70,918 | 341,067 |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Depreciation and amortisation | (6,024) | (5,719) | (23,370) |
+----------------------------------+-------------+-------------+-----------+
| Purchased ore and concentrate | (12,987) | - | (8,914) |
+----------------------------------+-------------+-------------+-----------+
| Processing costs for purchased | (1,831) | - | (1,206) |
| ore and concentrate | | | |
+----------------------------------+-------------+-------------+-----------+
| Production cost of gravel | (23) | (64) | (357) |
+----------------------------------+-------------+-------------+-----------+
| Stock movement in the period | 5,461 | 6,414 | (10,543) |
+----------------------------------+-------------+-------------+-----------+
| Pension service costs | (808) | (646) | (1,857) |
+----------------------------------+-------------+-------------+-----------+
| Other | (953) | (506) | 1,662 |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| C1 cost | 83,206 | 70,397 | 296,482 |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Own ore produced (tonnes) | 2,162,300 | 1,883,300 | 8,609,200 |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| C1 cash cost per tonne (US$) | 38.48 | 37.38 | 34.44 |
+----------------------------------+-------------+-------------+-----------+
"C1" costs represent the cash costs of production of own ore divided by
production volume of own ore, and excludes non cash costs such as depreciation,
amortisation, pension costs and stock movement, costs of purchased ore,
concentrate and production cost of gravel and excludes one-off items which are
outside the definition of EBITDA.
Note 6: Selling and distribution expenses
Selling and distribution expenses consisted of the following:
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Railway transportation | 20,231 | 14,115 | 69,477 |
+----------------------------------+-------------+-------------+-----------+
| Other transportation and port | 16,468 | 17,648 | 80,998 |
| charges | | | |
+----------------------------------+-------------+-------------+-----------+
| Agent fees | 189 | 203 | 799 |
+----------------------------------+-------------+-------------+-----------+
| Custom duties | 564 | 102 | 1,423 |
+----------------------------------+-------------+-------------+-----------+
| Advertising | 824 | 533 | 2,757 |
+----------------------------------+-------------+-------------+-----------+
| Personnel cost | 288 | 249 | 1,055 |
+----------------------------------+-------------+-------------+-----------+
| Depreciation | 413 | 362 | 1,581 |
+----------------------------------+-------------+-------------+-----------+
| Other | 405 | 539 | 4,176 |
+----------------------------------+-------------+-------------+-----------+
| Total selling and distribution | 39,382 | 33,751 | 162,266 |
| expenses | | | |
+----------------------------------+-------------+-------------+-----------+
Note 7: General and administrative expenses
General and administrative expenses consisted of the following:
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Personnel costs | 6,757 | 5,759 | 23,933 |
+----------------------------------+-------------+-------------+-----------+
| Buildings and maintenance | 752 | 592 | 2,391 |
+----------------------------------+-------------+-------------+-----------+
| Taxes other than income tax and | 376 | 877 | 3,930 |
| other charges | | | |
+----------------------------------+-------------+-------------+-----------+
| Consulting and other | 605 | 911 | 2,731 |
| professional fees | | | |
+----------------------------------+-------------+-------------+-----------+
| Depreciation and amortisation | 946 | 763 | 2,534 |
+----------------------------------+-------------+-------------+-----------+
| Communication | 113 | 83 | 529 |
+----------------------------------+-------------+-------------+-----------+
| Vehicles maintenance and fuel | 222 | 190 | 854 |
+----------------------------------+-------------+-------------+-----------+
| Repairs | 117 | 156 | 1,041 |
+----------------------------------+-------------+-------------+-----------+
| Audit fees | 682 | 648 | 1,112 |
+----------------------------------+-------------+-------------+-----------+
| Non-audit fees | 3 | 24 | 184 |
+----------------------------------+-------------+-------------+-----------+
| Security | 378 | 347 | 1,659 |
+----------------------------------+-------------+-------------+-----------+
| Research | 0 | - | 1 |
+----------------------------------+-------------+-------------+-----------+
| Other | 489 | 365 | 2,262 |
+----------------------------------+-------------+-------------+-----------+
| Total general and administrative | 11,440 | 10,715 | 43,161 |
| expenses | | | |
+----------------------------------+-------------+-------------+-----------+
Note 8: Foreign exchange gains and losses
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Operating foreign exchange | (387) | 251 | 2,534 |
| (losses) / gains | | | |
+----------------------------------+-------------+-------------+-----------+
| Non-operating foreign exchange | 606 | 1,436 | (2,552) |
| gains / (losses) | | | |
+----------------------------------+-------------+-------------+-----------+
| Total foreign exchange gains | 219 | 1,687 | (18) |
+----------------------------------+-------------+-------------+-----------+
Operating foreign exchange gains and losses are those items that are directly
related to the production and sale of pellets (e.g. trade receivables, trade
payables on operating expenditure). Non-operating gains and losses are those
associated with the Group's financing and treasury activities and with local
income tax payables.
Note 9: Assets impairments and reversals
Impairment losses relate to adjustments made against the carrying value of
assets where this is higher than the recoverable amount. Write-offs and
impairment losses for the three months ended 31 March 2010 consisted of the
following:
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| (Write-off) of inventories | - | - | (144) |
+----------------------------------+-------------+-------------+-----------+
| Write-up / (write-off) of | - | 31 | (717) |
| property, plant and equipment | | | |
+----------------------------------+-------------+-------------+-----------+
| Impairment of available-for-sale | - | - | (1,896) |
| financial assets | | | |
+----------------------------------+-------------+-------------+-----------+
| Total asset reversals / | - | 31 | (2,757) |
| (impairments) | | | |
+----------------------------------+-------------+-------------+-----------+
Note 10: Earnings per share and dividends paid and proposed
Basic EPS is calculated by dividing the net profit for the period attributable
to ordinary equity shareholders of Ferrexpo plc by the weighted average number
of ordinary shares.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares in issue on the assumption of conversion of all
potentially dilutive ordinary shares. All share awards are potentially dilutive
and have been included in the calculation of diluted earnings per share.
+----------------------------------+-------------+-------------+-----------+
| | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Profit for the period / year | | | |
| attributable to equity | | | |
| shareholders: | | | |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Basic earnings per share (US | 1.97 | 3.71 | 12.08 |
| cents) | | | |
+----------------------------------+-------------+-------------+-----------+
| Diluted earnings per share (US | 1.96 | 3.70 | 12.05 |
| cents) | | | |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Underlying earnings for the | | | |
| period / year: | | | |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Basic earnings per share (US | 4.48 | 3.49 | 12.80 |
| cents) | | | |
+----------------------------------+-------------+-------------+-----------+
| Diluted earnings per share (US | 4.47 | 3.48 | 12.77 |
| cents) | | | |
+----------------------------------+-------------+-------------+-----------+
The calculation of the basic and diluted earnings per share is based on the
following data:
+----------------------------------+-------------+-------------+-----------+
| Thousands | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Weighted average number of | | | |
| shares | | | |
+----------------------------------+-------------+-------------+-----------+
| Basic number of ordinary shares | 584,812 | 584,463 | 584,652 |
| outstanding | | | |
+----------------------------------+-------------+-------------+-----------+
| Effect of dilutive potential | 1,201 | 1,551 | 1,361 |
| ordinary shares | | | |
+----------------------------------+-------------+-------------+-----------+
| Diluted number of ordinary | 586,013 | 586,014 | 586,013 |
| shares outstanding | | | |
+----------------------------------+-------------+-------------+-----------+
The basic number of ordinary shares is calculated by subtracting the shares held
in treasury from the total number of ordinary shares in issue.
'Underlying earnings' is an alternative earnings measure, which the directors
believe provides a clearer picture of the underlying financial performance of
the Group's operations. Underlying earnings is calculated before
non-controlling interests have been deducted and excludes adjusted items. The
calculation of underlying earnings per share is based on the following earnings
data:
+----------------------------+-------+-------------+-------------+-----------+
| US$ 000 |Notes | Period | Period | Year |
| | | ended | ended | ended |
| | | 31.03.10 | 31.03.09 | 31.12.09 |
| | | (unaudited) | (unaudited) | (audited) |
+----------------------------+-------+-------------+-------------+-----------+
| Profit attributable to | | 11,512 | 21,689 | 70,627 |
| equity holders | | | | |
+----------------------------+-------+-------------+-------------+-----------+
| Write-down of VAT | 13 | 15,000 | - | - |
| receivable | / | | | |
| | 21 | | | |
+----------------------------+-------+-------------+-------------+-----------+
| (Reversal) / impairment of | 9 | - | (31) | 2,757 |
| property, plant and | | | | |
| equipment | | | | |
+----------------------------+-------+-------------+-------------+-----------+
| IPO costs | | 27 | 195 | 427 |
+----------------------------+-------+-------------+-------------+-----------+
| Negative goodwill | | - | - | (503) |
| generated on rights issue | | | | |
+----------------------------+-------+-------------+-------------+-----------+
| Loss / (gain) on disposal | | 140 | (180) | (213) |
| of PPE | | | | |
+----------------------------+-------+-------------+-------------+-----------+
| Non-operating foreign | 8 | (606) | (1,436) | 2,552 |
| exchange losses | | | | |
+----------------------------+-------+-------------+-------------+-----------+
| Tax on adjusted items | | 152 | 199 | (823) |
+----------------------------+-------+-------------+-------------+-----------+
| Underlying earnings | | 26,225 | 20,436 | 74,824 |
+----------------------------+-------+-------------+-------------+-----------+
Adjusted items are those items of financial performance that the Group believes
should be separately disclosed on the face of the income statement to assist in
the understanding of the underlying financial performance achieved by the Group.
Adjusted items that relate to the operating performance of the Group include
impairment charges and reversals and other exceptional items. Non-operating
adjusted items include gains and losses on disposal of investments and
businesses and non-operating foreign exchange gains and losses.
Dividends paid
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Paid | | | |
+----------------------------------+-------------+-------------+-----------+
| Interim dividend for 2009: 3.3 | - | - | 19,289 |
| US cents per ordinary share | | | |
+----------------------------------+-------------+-------------+-----------+
| Final dividend for 2008: 3.3 US | - | - | 20,261 |
| cents per ordinary share | | | |
+----------------------------------+-------------+-------------+-----------+
| Total dividends paid during the | - | - | 39,550 |
| period | | | |
+----------------------------------+-------------+-------------+-----------+
Note 11: EBITDA
The Group calculates EBITDA as profit from continuing operations before tax and
finance plus depreciation and amortisation (included in cost of sales, general
and administrative expenses and selling and distribution costs) and
non-recurring cash items included in other income and other expenses plus the
net gains and losses from disposal of investments and property, plant and
equipment. The Group presents EBITDA because it believes that EBITDA is a useful
measure for evaluating its ability to generate cash and its operating
performance.
+----------------------------+-----+-------------+-------------+-----------+
| US$ 000 | | Period | Period | Year |
| | | ended | ended | ended |
| | | 31.03.10 | 31.03.09 | 31.12.09 |
| | | (unaudited) | (unaudited) | (audited) |
+----------------------------+-----+-------------+-------------+-----------+
| Profit before tax and | | 23,080 | 27,646 | 104,227 |
| finance | | | | |
+----------------------------+-----+-------------+-------------+-----------+
| Write-down of VAT | 13 | 15,000 | - | - |
| receivable | / | | | |
| | 21 | | | |
+----------------------------+-----+-------------+-------------+-----------+
| Write-offs and impairment | | - | (31) | 2,757 |
| losses | | | | |
+----------------------------+-----+-------------+-------------+-----------+
| IPO costs | | 27 | 195 | 427 |
+----------------------------+-----+-------------+-------------+-----------+
| Negative goodwill | | - | - | (503) |
+----------------------------+-----+-------------+-------------+-----------+
| Share based payments | | 324 | 856 | 3,423 |
+----------------------------+-----+-------------+-------------+-----------+
| Loss / (gain) on disposal | | 140 | (180) | (213) |
| of PPE | | | | |
+----------------------------+-----+-------------+-------------+-----------+
| Gain on disposal of | | (4) | - | - |
| intangible assets | | | | |
+----------------------------+-----+-------------+-------------+-----------+
| Depreciation and | | 7,399 | 6,991 | 28,018 |
| amortisation | | | | |
+----------------------------+-----+-------------+-------------+-----------+
| EBITDA | | 45,966 | 35,477 | 138,136 |
+----------------------------+-----+-------------+-------------+-----------+
Note 12: Property, plant and equipment
During the three months ended 31 March 2010, the Group acquired property, plant
and equipment with a cost of US$29,753,154 (31 March 2009: US$21,578,184; 31
December 2009: US$86,006,000) and disposed of property, plant and equipment with
original costs of US$3,350,314 (31 March 2009: US$1,134,878; 31 December 2009:
US$8,179,000).
Note 13: Other taxes recoverable and prepaid
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| VAT receivable | 91,252 | 51,663 | 81,269 |
+----------------------------------+-------------+-------------+-----------+
| Withholding tax | - | 16 | - |
+----------------------------------+-------------+-------------+-----------+
| Other taxes prepaid | 41 | 20 | 15 |
+----------------------------------+-------------+-------------+-----------+
| Total | 91,293 | 51,699 | 81,284 |
+----------------------------------+-------------+-------------+-----------+
The VAT receivable results from VAT paid on domestic purchases of goods and
services and on the imports of equipment and where relevant services into
Ukraine to the extent that this can not be offset on VAT paid on the sale of
goods and services.
During the three month period to 31 March 2010, the VAT receivable increased
from US$81,268,909 to US$106,251,966. The increased mainly related to Ferrexpo
Poltava Mining. As an exporter, Ferrexpo Poltava Mining, the Group's principal
subsidiary, does not receive substantial amounts of VAT on domestic sales to
offset against VAT paid for purchases of goods and services. VAT on trading
items is due to be repaid three months after it is incurred. Due to the economic
downturn and general financial crisis in 2009, the presidential elections in
early 2010, the ongoing negotiations for financial aid from the IMF and the late
adoption of the state budget for 2010, the Ukrainian government has not been
making timely repayments of VAT made on purchases of plant equipment and goods
and services to the extent that these amounts can not be offset against VAT
charged on sales. The amounts have been classified in the accounts as repayable
within one year. None of the VAT receivable amounts are in dispute and measures
which will result in the collection of this receivable are well advanced (see
below).
Write-down of VAT receivable
As a result of a decision by the Ukrainian Cabinet of Ministers published on 1
June 2010 that the government intends to convert outstanding overdue VAT
balances into government bonds with a coupon interest rate of 5.5% per annum
paid semi annually with 10 half-yearly principal repayments.
Until further information is provided uncertainty exists as to the tradability
of the bonds, the exact timing and the process of conversion. It is expected
that the amount available for conversion into VAT bonds will relate to the
outstanding VAT receivable as at 31 December 2009 amounting to US$81,268,909.
Accounting standards require such financial instruments, when issued, to be fair
valued, or, if no market exists, an estimate to be made as to the market value.
Market yields on Ukrainian domestic hryvnia debt currently range between 12.0%
to 16.0% and have recently been volatile. If these yields were to continue at
these levels, they would be higher than the coupon interest rate on the proposed
new bond issue. As a result, a one off fair value adjustment could be realised
on the initial recognition of this financial instrument. Whilst it is not
possible to value this instrument exactly prior to its issue, an estimated gross
charge, before any tax deductions of US$15,000,000, has been recorded in the
income statement to reflect Management's estimate of the difference between the
amount of the VAT receivable that is refundable and the expected fair value of
the government bond to be issued in settlement of this debt. This estimate will
be revised when the final terms, conditions and features of the new financial
instrument are known.
Note 14: Cash and cash equivalents
As at 31 March 2010 the Group held cash and cash equivalents of US$22,799,680
(31 March 2009: US$107,311,897; 31 December 2009: US$11,990,751).
Note 15: Share capital and reserves
The share capital of Ferrexpo plc at 31 March 2010 was 613,967,956 (31 March
2009: 613,967,956; 31 December 2009: 613,967,956) ordinary shares at par value
of GBP0.10 paid for cash, resulting in share capital of US$121,628,000 which is
unchanged since the Group's Initial Public Offering in June 2007.
This balance includes 25,343,814 shares (31 March 2009: 25,343,814 shares; 31
December 2009: 25,343,814 shares) which are held in treasury, resulting from a
share buyback that was undertaken in September 2008.
Note 16: Interest bearing loans and borrowings
During the period ended 31 March 2010, the remaining outstanding balance
amounting to US$207,727,272 under the term loan and revolving pre-export finance
facility entered into on 27 December 2006 for an amount of $275,000,000 and
subsequently amended on 5 July 2007 to an amount of $335,000,000 was fully
repaid (The amounts repaid on the same facility in the periods for the 3 month
to 31 March 2009: US$18,181,818; 12 months to 31 December 2009: US$72,727,272).
The Group entered into a new three year term loan pre-export finance facility on
27 November 2009 in the amount of US$230,000,000. This pre-export finance
facility was drawn in full on 8 January 2010 and was used for repayment of the
pre-export finance facility entered into on the 27 December 2006 as amended on 5
July 2007.
At 31 March 2010 the pre-export finance facility was fully drawn (31 March 2009
: fully drawn; 31 December 2009 : fully drawn, each in respect of the pre-export
finance facility then existing).
The pre-export term loan credit facility is guaranteed and secured as follows:
· Ferrexpo AG assigned the rights to revenue from certain sales contracts;
· Ferrexpo Poltava GOK Corporation assigned all of its rights for ten
export contracts for the pellets sales to Ferrexpo AG; and
· the Group pledged its bank account into which all proceeds from the sale
of certain iron ore pellet contracts which have been assigned are received.
In January 2009, Ferrexpo Poltava GOK Corporation concluded a sale and financial
leaseback transaction relating to rail cars with a facility amount of
US$19,718,000. During the three month period to 31 March 2010 US$318,680 of the
principal was repaid (31 March 2009: US$192,000; 31 December 2009:
US$1,099,000).
Note 17: Net financial indebtedness
Net financial indebtedness of the Group is shown in the note below:
+-----------------------------+-------+-------------+-------------+-----------+
| US$ 000 |Notes | Period | Period | Year |
| | | ended | ended | ended |
| | | 31.03.10 | 31.03.09 | 31.12.09 |
| | | (unaudited) | (unaudited) | (audited) |
+-----------------------------+-------+-------------+-------------+-----------+
| | | | | |
+-----------------------------+-------+-------------+-------------+-----------+
| Cash and cash equivalents | 14 | 22,800 | 107,312 | 11,991 |
+-----------------------------+-------+-------------+-------------+-----------+
| Current borrowings | 16 | (94,592) | (76,187) | (251,379) |
+-----------------------------+-------+-------------+-------------+-----------+
| Non-current borrowings | 16 | (214,553) | (231,491) | (18,143) |
+-----------------------------+-------+-------------+-------------+-----------+
| Current commodity loans | | (88) | (1,792) | (124) |
+-----------------------------+-------+-------------+-------------+-----------+
| Non-current commodity loans | | - | (86) | - |
+-----------------------------+-------+-------------+-------------+-----------+
| Net financial indebtedness | | (286,433) | (202,244) | (257,655) |
+-----------------------------+-------+-------------+-------------+-----------+
Note 18: Related party disclosure
During the periods presented the Group entered into arm's length transactions
with entities under common control of the majority owner of the Group,
Kostyantin Zhevago and with other related parties. Management considers that
the Group has appropriate procedures in place to identify and properly disclose
transactions with the related parties.
The related party transactions entered into by the Group during the periods
presented are summarised below:
Entities under common control are those under control of Kostyantin Zhevago. TIS
Ruda, in which the Group holds an interest of 48.6%, is the only associated
company of the Group. The other related parties are those entities controlled by
Wolfram Kuoni (independent non-executive Director of Ferrexpo plc) and Olexander
Moroz (supervisory board member of Ferrexpo Poltava GOK Corporation).
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | Period ended | Period ended | Year ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------+----------------------------------+----------------------------------+----------------------------------+
| US$ 000 |Entities |Asso-ciated | Other |Entities |Asso-ciated | Other |Entities |Asso-ciated | Other |
| | under | compa-nies |related | under | compa-nies |related | under | compa-nies |related |
| | common | |parties | common | |parties | common | |parties |
| | control | | | control | | | control | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Other sales | 236 | - | 501 | 226 | - | 117 | 506 | - | 1,480 |
| (1) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Total revenue | 236 | - | 501 | 226 | - | 117 | 506 | - | 1,480 |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Purchase of | 16,468 | - | 3,357 | 747 | - | 3,019 | 4,458 | - | 11,930 |
| materials (2) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Purchase of | 84 | - | 50 | 57 | - | 60 | 444 | - | 23 |
| services (3) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| General and | 923 | - | - | 641 | - | 8 | 3,315 | - | - |
| administration | | | | | | | | | |
| expenses (4) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Selling and | 0 | 2,696 | 3,607 | 0 | 3,201 | 1,668 | - | 11,849 | 11,736 |
| distribution | | | | | | | | | |
| (5) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Other | 79 | - | - | 13 | - | 3 | 91 | - | 8 |
| expenses (6) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Total | 17,554 | 2,696 | 7,014 | 1,458 | 3,201 | 4,758 | 8,308 | 11,849 | 23,697 |
| expenses | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Finance | 109 | 29 | - | 454 | 74 | - | 1,329 | 267 | - |
| income (7) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Finance | (125) | - | - | (193) | - | - | (816) | - | - |
| expenses (7) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Net finance | (16) | 29 | - | 261 | 74 | 0 | 513 | 267 | - |
| income/(costs) | | | | | | | | | |
+----------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
(1) Other sales to other related parties consist of scrap metal sales made
to Ferrolit, a company under control of a supervisory board member of FPM. Other
sales to entities under common control are mainly related to sales of power,
steam and water to Kislorod PCC and Vorskla Steel Ltd.
(2) Concentrate in the amount of US$12,846,000 has been purchased from
Vostock Ruda during the three months period ended 31 March 2010 (31 March 2009:
US$ nil; 31 December 2009: US$1,386,000). Purchase of materials from other
related parties includes purchased cast iron balls from Ferrolit (see above) of
US$3,340,000 (31 March 2009: US$2,814,000; 31 December 2009: US$11,286,000).
These are used in the production process.
(3) Kuoni Attorneys at law Ltd. has provided services to the Group of
US$49,000 (31 March 2009: US$ nil; 31 December 2009: US$23,000) during the 3
months to 31 March 2010. Wolfram Kuoni who is a partner in the firm is also an
independent non-executive Director of Ferrexpo plc. The services were provided
on an arm length basis by other members of Kuoni Attorneys at law Ltd.
(4) The Group paid US$775,000 during the three months period ended 31
March 2010 to FC Vorskla under a contract entered into on 1 April 2009 and
renewed on 10 December 2009 for advertisement, marketing and general PR related
services (31 March 2009: US$537,000; 31 December 2009: US$2,631,000).
(5) Selling and distribution services are purchased from TIS Ruda, an
associated company as the Group holds an interest of 49.9%. These services
relate to port services including port charges, handling costs, agent
commissions and storage costs. Services from other related parties are mainly
provided by Slavutich Ruda which is under control of Olexander Moroz, a
supervisory board member of FPM. Slavutich Ruda provided railway transportation
services mainly related to custom clearance services. These amounted to
US$3,588,000 during the three months period ended 31 March 2010 (31 March 2009:
US$1,668,000; 31 December 2009: US$11,507,000).
(6) Other operating expenses mainly relate to insurance fees and
communication services. These are purchased from ASK Omega and TV & Radio Co. In
the three month period ended 31 March 2010, these amounted to US$28,000 (31
March 2009; US$ nil; 31 December 2009: US$ nil) respectively of US$34,000 (31
March 2009: US$ nil; 31 December 2009: US$60,000).
(7) The Group has transactional banking arrangements with Finance &Credit
Bank (F&C), which is under common control of Kostyantin Zhevago. Finance income
and expenses relate to these transactional banking arrangements. Further
information is provided under transactional banking arrangements in this note.
Sale and purchases of property, plant, equipment and investments
The table below details the transactions of a capital nature which were
undertaken between group companies and entities under common control, associated
companies and other related parties during the periods presented.
+---------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | Period ended | Period ended | Year ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+---------------+----------------------------------+----------------------------------+----------------------------------+
| US$ 000 |Entities |Asso-ciated | Other |Entities |Asso-ciated | Other |Entities |Asso-ciated | Other |
| | under | compa-nies |related | under | compa-nies |related | under | compa-nies |related |
| | common | |parties | common | |parties | common | |parties |
| | control | | | control | | | control | | |
+---------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Purchase of | - | - | - | 2,200 | - | - | 2,200 | - | - |
| property | | | | | | | | | |
| plant and | | | | | | | | | |
| equipment (1) | | | | | | | | | |
+---------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
(1) On 31 March 2009, the company acquired a trial filter press from
Progress Plant Company, an entity under common control for US$2,200,000.
The outstanding investments/balances with related parties for the periods
presented are as follows:
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | Period ended | Period ended | Year ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+--------------------+----------------------------------+----------------------------------+----------------------------------+
| US$ 000 |Entities |Asso-ciated | Other |Entities |Asso-ciated | Other |Entities |Asso-ciated | Other |
| | under | compa-nies |related | under | compa-nies |related | under | compa-nies |related |
| | common | |parties | common | |parties | common | |parties |
| | control | | | control | | | control | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Investments | 4,325 | - | - | 4,435 | - | - | 2,917 | - | - |
| available-for-sale | | | | | | | | | |
| (1) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Prepayments | 970 | - | - | - | - | - | - | - | - |
| for PPE (2) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Loans (3) | - | 1,000 | - | - | 2,000 | 0 | - | 2,000 | - |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Total | 5,295 | 1,000 | - | 4,435 | 2,000 | - | 2,917 | 2,000 | - |
| non-current | | | | | | | | | |
| assets | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Investments | - | - | - | 649 | - | - | 626 | - | - |
| available-for-sale | | | | | | | | | |
| (1) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Loans (3) | - | 1,550 | | | 5,000 | | | 550 | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Trade and | 2,155 | - | 364 | 1,611 | 340 | 24 | 1,999 | 93 | 6 |
| other | | | | | | | | | |
| receivables | | | | | | | | | |
| (4) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Prepayments | 155 | 1 | 87 | 9 | 160 | 113 | 995 | - | 1 |
| and other | | | | | | | | | |
| current | | | | | | | | | |
| assets (5) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Short term | 2,071 | - | - | 3,775 | - | - | 411 | - | - |
| deposits with | | | | | | | | | |
| banks (5) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Cash and cash | 6,402 | - | - | 37,494 | - | - | 1,712 | - | - |
| equivalents | | | | | | | | | |
| (5) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Total current | 10,783 | 1,551 | 451 | 43,538 | 5,500 | 137 | 5,743 | 643 | 7 |
| assets | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Trade and | 15,257 | - | 1,744 | 229 | - | 954 | 514 | - | 1,146 |
| other | | | | | | | | | |
| payables (6) | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
| Current | 15,257 | - | 1,744 | 229 | - | 954 | 514 | - | 1,146 |
| liabilities | | | | | | | | | |
+--------------------+----------+-------------+---------+----------+-------------+---------+----------+-------------+---------+
(1) The investments available-for-sale comprised of shareholdings in LLC
Atol (9.95%), OJSC Stahanov (3.14%) and Vostock Ruda (1.10%). Further interests
in these companies are held through entities controlled by Kostyantin Zhevago.
The changes of the values in the table above are related to fair value
adjustments made at the end of the periods respectively year. The shareholdings
remained unchanged during the periods disclosed above. Further information is
provided in note 22 of the Annual Report & Accounts 2009.
(2) A prepayment for the purchase of press filter equipment in the amount
of US$970,000 has been made to Progress Plant Company in the three months period
ended 31 March 2010 (31 March 2009: US$ nil; 31 December 2009: US$ nil). The
company is under common control of Kostyantin Zhevago.
(3) Loans were granted to TIS Ruda in 2007 and 2008, which have been
partially repaid during the financial year 2009. The Group holds an interest of
48.6% in this Ukrainian company operating a port located on the Black Sea. The
associated company provides port services to the Group (see above).
(4) As of 31 March 2010 trade and other receivables included outstanding
amounts relating to the disposal of shares in Vostock Ruda of US$1,178,000 (31
March 2009: US$1,212,000; 31 December 2009: US$1,169,000). During the financial
year 2008, 2.20% of the Group's interest in Vostock Ruda has been sold to
Progress Plant Company. Both companies are under common control of Kostyantin
Zhevago.
(5) As of 31 March 2010 cash and cash equivalents with F&C were
US$6,402,000 (31 March 2009: US$37,494,000; 31 December 2009: US$1,712,000) and
short term deposits with the same financial institution US$2,071,000 (31 March
2009: US$3,775,000; 31 December 2009: US$411,000). Further information is
provided under transactional banking arrangements below.
(6) US$14,669,000 of the trade and other payables due to entities under
common control as of 31 March 2010 is related to the purchased concentrate from
Vostock Ruda (31 March 2009: US$ nil; 31 December 2009: US$ nil). US$1,638,000
of the balance due to other related parties is in respect of the purchased
material from Ferrolit (31 March 2009: US$638,000; 31 December 2009:
US$989,000).
Transactional banking arrangements
The Group has transactional banking arrangements with Finance & Credit Bank
(F&C) in Ukraine which is under common control of the majority shareholder of
Ferrexpo plc. Finance income and finance costs are disclosed in the table above.
The Group entered into a multi-currency loan agreement in April 2007 with F&C,
which expired on 16 April 2010 and has been extended to 16 March 2013 upon the
same terms and conditions except for two changes. The maximum facility limit has
been increased from UAH50.5 million to UAH80.0 million (US$10.1 million at the
exchange rate as of 31 March 2010) and the interest rates increased from 16% pa
to 18% pa.
In April 2010, in addition to the original March 2007 loan described above, a
further multi-currency loan facility was granted for a period of one year and
with a maximum facility limit of UAH80.0 million (US$10.1 million at the
exchange rate as of 31 March 2010). This new loan is offered under the same
terms and conditions as the original loan. Additional assets of US$20.1 million
have been pledged for the new loan facility. The total value of pledges for the
original and new loan facility is US$33.4 million.
Other related party transaction
In August 2009, the Group paid Swiss Withholding Tax of US$984,106 on behalf of
Kostyantin Zhevago on costs incurred for the Initial Public Offering completed
in June 2007. This was settled in accordance with terms and conditions entered
into at the time of the Initial Public Offering of the company.
Note 19: Reconciliation of profit before income tax to net cash flow from
operating activities
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Profit before tax | 16,056 | 24,325 | 80,850 |
+----------------------------------+-------------+-------------+-----------+
| Adjustments for non-cash items: | | | |
+----------------------------------+-------------+-------------+-----------+
| Depreciation of property, plant | 7,399 | 6,992 | 28,018 |
| and equipment and amortisation | | | |
| of intangible assets | | | |
+----------------------------------+-------------+-------------+-----------+
| Interest expense | 7,952 | 5,581 | 20,622 |
+----------------------------------+-------------+-------------+-----------+
| Interest income | (322) | (824) | (2,893) |
+----------------------------------+-------------+-------------+-----------+
| Share of income of associates | (532) | (330) | (1,304) |
+----------------------------------+-------------+-------------+-----------+
| Movement in allowance for | (756) | (2,579) | (5,199) |
| doubtful receivables | | | |
+----------------------------------+-------------+-------------+-----------+
| Loss / (profit) on disposal of | 140 | (180) | (213) |
| PPE | | | |
+----------------------------------+-------------+-------------+-----------+
| Gain on disposal of intangible | (4) | - | - |
| assets | | | |
+----------------------------------+-------------+-------------+-----------+
| Write-down of VAT receivable | 15,000 | - | - |
+----------------------------------+-------------+-------------+-----------+
| (Write-ups) / write-offs and | - | (31) | 2,757 |
| impairment losses | | | |
+----------------------------------+-------------+-------------+-----------+
| Site restoration provision | 44 | 32 | 159 |
+----------------------------------+-------------+-------------+-----------+
| Employee benefits | 1,208 | 1,369 | 5,474 |
+----------------------------------+-------------+-------------+-----------+
| IPO costs | 27 | 195 | 427 |
+----------------------------------+-------------+-------------+-----------+
| Share based payments | 324 | 856 | 3,423 |
+----------------------------------+-------------+-------------+-----------+
| Negative goodwill generated on | - | - | (503) |
| rights issue | | | |
+----------------------------------+-------------+-------------+-----------+
| Operating foreign exchange gains | 387 | (251) | (2,534) |
+----------------------------------+-------------+-------------+-----------+
| Non-operating foreign exchange | (606) | (1,436) | 2,552 |
| losses | | | |
+----------------------------------+-------------+-------------+-----------+
| Operating cash flow before | 46,317 | 33,719 | 131,636 |
| working capital changes | | | |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Changes in working capital: | | | |
+----------------------------------+-------------+-------------+-----------+
| (Increase) / decrease in trade | (16,823) | 17,827 | 14,961 |
| and other receivables | | | |
+----------------------------------+-------------+-------------+-----------+
| (Increase) / decrease in | (6,045) | (6,125) | 1,777 |
| inventories | | | |
+----------------------------------+-------------+-------------+-----------+
| Increase / (decrease) in trade | 6,268 | (1,031) | (6,474) |
| and other accounts payable | | | |
+----------------------------------+-------------+-------------+-----------+
| (Increase)/decrease in other | (25,271) | 6,336 | (24,038) |
| taxes recoverable and prepaid | | | |
+----------------------------------+-------------+-------------+-----------+
| Cash generated from operating | 4,446 | 50,726 | 117,862 |
| activities | | | |
+----------------------------------+-------------+-------------+-----------+
| | | | |
+----------------------------------+-------------+-------------+-----------+
| Interest paid | (6,085) | (2,148) | (19,197) |
+----------------------------------+-------------+-------------+-----------+
| Income tax paid | (130) | (9,286) | (18,899) |
+----------------------------------+-------------+-------------+-----------+
| Post-employment benefits paid | (838) | (724) | (2,897) |
+----------------------------------+-------------+-------------+-----------+
| Net cash flows from operating | (2,607) | 38,568 | 76,869 |
| activities | | | |
+----------------------------------+-------------+-------------+-----------+
Note 20: Commitments and contingencies
Commitments
+----------------------------------+-------------+-------------+-----------+
| US$ 000 | Period | Period | Year |
| | ended | ended | ended |
| | 31.03.10 | 31.03.09 | 31.12.09 |
| | (unaudited) | (unaudited) | (audited) |
+----------------------------------+-------------+-------------+-----------+
| Operating lease commitments | 19,508 | 19,558 | 19,702 |
+----------------------------------+-------------+-------------+-----------+
| Capital commitments on purchase | 52,340 | 42,144 | 41,404 |
| of PPE | | | |
+----------------------------------+-------------+-------------+-----------+
| Guarantees provided | 230,000 | 262,272 | 208,000 |
+----------------------------------+-------------+-------------+-----------+
Legal
In the ordinary course of business, the Group is subject to legal actions and
complaints. Management believes that the ultimate liability, if any, arising
from such actions or complaints will not have a material adverse effect on the
financial condition or the results of future operations of the Group.
Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and custom regulations
continue to evolve. Legislation and regulations are not always clearly written
and are subject to varying interpretations and inconsistent enforcement by
local, regional and national authorities, and other Governmental bodies.
Instances of inconsistent interpretations are not unusual.
The uncertainty of application and the evolution of Ukrainian tax laws,
including those affecting cross border transactions, create a risk of additional
tax payments having to be made by the Group, which could have a material effect
on the Group's financial position and results of operations. The Group does not
believe that these risks are any more significant than those of similar
enterprises in Ukraine.
Note 21: Subsequent events
Except for the event mentioned below, no material adjusting or non-adjusting
events have occurred subsequent to the period end.
As a result of a decision by the Ukrainian Cabinet of Ministers published on 1
June 2010, outstanding overdue VAT balances may be converted into government
bonds. This has resulted in a write-down of the VAT receivable balances as of 31
March 2010. See disclosure made in note 13.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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